Upstream Building & Operating Costs Hit Record Highs

The cost of building and operating upstream oil and gas facilities climbed to all-time highs during the first nine months of the year.

Capital costs for upstream oil and gas facilities rose by 1% between January and September, according to economic research firm IHS. That brings costs back to their previous high, set in the third quarter of 2008. Upstream operating costs rose 0.5% over the same period to set a new record.

Pritesh Patel is senior director of research at IHS.

“Offshore day rates for deepwater vessels are still increasing, 4%- 6% in the last six months. You’re still seeing escalations in things like labor costs, construction labor, and there has been a steady demand and backlogs of equipment and subsea equipment as well, which is showing escalation.”

Oil prices remain above the threshold price of production for most projects. Patel says that’s likely to remain the case next year, even as capital costs continue to rise. The result is that demand for oilfield goods and services should remain steady as new construction moves ahead.

 

Bio photo of Andrew Schneider

Andrew Schneider

Business Reporter

Andrew Schneider joined KUHF in January 2011, after more than a decade as a print reporter for The Kiplinger Letter...